St. Jude Medical: Rebates, Registries and Two Kickback Settlements

In the St. Jude Medical kickback settlement announced in January 2011, the company agreed to pay $16 million over allegations that it used research payments to persuade physicians to implant its pacemakers and defibrillators. An earlier settlement concerned allegations that St. Jude used rebates to secure hospital purchases. For someone inside device sales, research or purchasing, the connection is familiar: one part of the business offers a benefit, another expects a product commitment, and federal healthcare programs pay for the resulting care.

The Department of Justice’s June 4, 2010 announcement reported that St. Jude, Parma Community General Hospital and Norton Healthcare had paid the United States $3,898,300 to resolve the rebate allegations. Its January 20, 2011 announcement concerned studies and a device registry. Different whistleblowers brought the cases, and the allegations describe different ways of paying for cardiac-device business.

Post-Market Studies Allegedly Aimed at a Sales Target

The government alleged that St. Jude used three post-market studies and a device registry to pay physicians to choose its pacemakers and implantable cardioverter defibrillators. Participating physicians received fees ranging up to $2,000 per patient. According to the Justice Department, the company recruited physicians to retain their business or convert them from a competitor’s product.

The studies and registry put St. Jude in continuing contact with the people using its devices, with payments attached to participation.

The government acknowledged that St. Jude collected data and information from participating physicians. Its allegation was that the company knowingly used the studies and registry to increase sales by paying particular physicians to select its products. The research work and the alleged sales purpose occupied the same arrangement.

For a clinical or research employee, the account strategy explains why a physician was recruited and what business the company expected to win. A completed study form can show the work performed while the sales correspondence explains what the company wanted from the relationship.

The patient depends on a cardiologist or electrophysiologist to choose the device on medical grounds. The government’s allegation put a manufacturer’s extra payment inside that choice. That puts patients and honest competitors on the losing side of a product decision the government said was bought with a fee, and leaves taxpayers paying for the care.

Research Equipment Allegedly Tied to Purchase Commitments

The whistleblower’s complaint in the Ohio rebate case also alleged research and equipment inducements. In his amended complaint, a regional sales manager alleged that St. Jude used research incentives to regain lost accounts, increase market share and persuade physicians to use its products. He oversaw sales representatives and supported medical-device sales.

According to the amended complaint, St. Jude offered clinical studies to encourage physicians to use products that hospitals had bought in bulk and still held on the shelf near the end of a sales quarter. In that account, a research initiative served an inventory target. The question inside the sales organization was how to get previously purchased devices implanted.

The complaint also alleged that St. Jude placed research equipment in exchange for a $900,000 quantity purchase of pacemakers and defibrillators. It described an Endocardial Solutions mapping system offered to encourage purchases, along with a physician’s commitment to influence another hospital system’s purchasing. The alleged benefit reached beyond the account where the equipment was placed.

Continued access to equipment allegedly depended on continued device business. The complaint said sales representatives were directed to tell customers that their mapping systems would be removed if they refused to commit to cardiac rhythm management and electrophysiology sales. Equipment already inside a facility became a means of obtaining the next purchasing commitment.

The complaint then alleged that St. Jude kept the clinical-study activity out of routine written reporting:

Research allegedly helped sell the devices, but employees were told to leave it out of the reports. For an insider, the account discussion and the monthly report may tell very different stories.

The 2020 Journal of Forensic and Investigative Accounting paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud explains that inducements can take the form of cash or noncash benefits within complex business arrangements. The equipment allegation makes that concrete: the benefit was access to a system, and the requested return was device business. A payment ledger alone would miss the purchase conditions attached to keeping the equipment.

Retroactive Rebates and the Next Order

The rebate settlement covered allegations that St. Jude paid hospitals based on their previous purchases and paid rebates on competitors’ equipment to induce future purchases from St. Jude. Both arrangements used an earlier purchase to help win later business. The government alleged that the kickbacks caused false claims to federal health care programs.

The settlement assigned $3,725,000 to St. Jude, $40,000 to Parma Community General Hospital in Ohio and $133,300 to Norton Healthcare in Kentucky. The hospitals accused of taking the improper rebates paid too.

The whistleblower’s complaint describes rebate proposals from 2004. It alleged that a hospital agreeing to a minimum purchase could receive an initial rebate on products bought in the previous quarter, followed by an additional rebate if those products were implanted in the current quarter. The money depended on both purchasing and use.

The proposed terms for Parma joined the implantation deadline to another order:

The proposed rebate tied devices already on the shelf to an implantation deadline and another order before the quarter closed. The date of implantation mattered to the sales proposal.

The complaint also alleged back-end rebates on previously purchased products after a customer committed to a larger quantity purchase at quarter end. Reading the original purchase order alone would miss the later bargain. The rebate proposal, its conditions and the subsequent credit explain what the hospital ultimately received and what business it promised in return.

How Does Reimbursement Work for Medical Devices?

The amended complaint also alleged that St. Jude caused hospitals to put medical-device costs improperly into capital costs on reports used for reimbursement from Medicare, Medicaid and other federal programs, producing inflated payments. It alleged that hospitals accepted the inducements while certifying compliance with federal health care laws in their cost reports. Those allegations connect the account arrangement to what the hospital told the government.

Medicare generally pays for an implanted device through the hospital’s procedure payment. The physician may choose the product while the hospital buys it and receives payment for the care. That division explains why manufacturer incentives can reach both clinical decisions and institutional purchasing.

What Evidence Is Needed to Prove Fraud?

The St. Jude complaint connected benefits and purchase commitments to allegedly false program claims through equipment placements, rebate terms, implantation deadlines and internal communications. We work with insiders to establish how the records and decisions they know fit together in a medical device kickback case.

The complaint adds a detail that reaches the sales representative’s own compensation. It alleged that St. Jude required representatives to subsidize clinical studies offered as inducements through reductions in their commissions. The alleged research expense therefore appeared inside sales compensation as well as in the hospital relationship. A commission agreement could help connect the study to the commercial organization funding it.

The company record and the provider record answer different parts of the same question. Account correspondence can explain the promised business. Purchase and rebate records can show the agreed exchange. Implantation and billing records connect that exchange to the care for which a federal program paid.

The Same Study-Payment Pattern at Medtronic

Medtronic agreed to pay $23.5 million in December 2011 to resolve allegations that it used payments connected to post-market studies and device registries to induce physicians to implant its pacemakers and defibrillators. The parallel is the payment structure: a physician participating in a study or registry also controlled which manufacturer’s device went into a patient.

Across these allegations, the product decision was the commercial prize. In the St. Jude registry case, the government described fees intended to retain or convert physician business. In the rebate case, it described benefits to hospitals intended to secure future purchases. The insider’s account can show how a research or pricing arrangement became a way to buy that decision.

What the Whistleblower Cases Produced

Both St. Jude resolutions began with whistleblower cases under the False Claims Act. The regional sales manager brought the rebate case. A separate whistleblower brought the studies and registry case, and the Justice Department announced a $2.64 million share of the government’s recovery for that whistleblower.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Account Was Promised

If you know which device purchases a study payment, rebate or equipment placement was meant to secure, tell our whistleblower experts what the account was promised. We build the case around the decisions you saw, bring in medical device whistleblower lawyers who understand manufacturer inducements and hospital claims, and stay beside you throughout the case.